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Stephen Mihm

Which Comes First: Inflation or Political Instability?

In the post-World War II era, the effects of spiraling prices have varied greatly, depending on the quality of a country’s institutions.

Inflation is the trigger in Peru’s protests.

Inflation is the trigger in Peru’s protests.

Photographer: Miguel Yovera/Bloomberg

Inflation is often viewed as an economic phenomenon, with mostly economic effects. Policy makers today worry about what inflation will do to the housing market; they express concern about government borrowing costs. They might note changes in individual economic behavior: a shopper pinching pennies at the grocery store. Politicians will worry about being voted out of office if they are blamed for its economic impact.

But inflation is associated with more than just economics and electability. It is also linked to political instability. The historical record contains many cases where inflation went hand in hand with major political realignments, coups and even bloody revolutions. This history is worth keeping in mind as countries throughout the world grapple with spiraling prices.